9A
Date: November 19, 2024
To: Honorable Mayor and Members of the City Council
From: Craig Bilezerian, Public Works Director
By: Charles Schaich, Policy and Resources Specialist | [email protected] Sue Siani, Water Commission Chairperson
Subject: Public Works and Water Commission - Conduct Public Hearing and Adopt RESOLUTION Approving Proposed Series of Annual Increases of Municipal Water Rates Over a Five-Year Period Beginning January 1, 2025 and Ending December 31, 2029.
RECOMMENDATION
Recommendation of the Water Commission and Public Works Director that City Council:
1. Conduct a public hearing on a series of annual rate increases; and
2. Adopt a RESOLUTION approving a proposed series of annual rate increases of Torrance Municipal Water rates for a five-year period beginning January 1, 2025 and ending December 31, 2029; and
3. Maintain the discount rate for low-income senior and disabled customers.
FUNDING
None required.
DISCUSSION
In November 2017, City Council, during a public hearing, approved a five-year water rate plan in accordance with modified Proposition 218 requirements that adjusted municipal water rates for the five-year period of 2018 through 2022.The last rate adjustment under this authorization became effective in January 2022, and there have been no increases in municipal rates for the last two years.
The rate plan adopted by City Council in 2017 for the five-year period of 2018 through 2022 incorporated a rate structure that contained a three-tier inclining rate structure for single family residential (SFR) customers and low income senior or disabled SFR customers, and a two-tier rate structure for all other standard customers. The rate structure was implemented in accordance with cost of service (COS) criteria required under modified Proposition 218 requirements. Over the last several years, water rates throughout California have increased significantly due to a number of factors, including: significantly higher water supply and water treatment costs; City Council
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increases in operating and maintenance costs; required capital and system improvement investments; high inflationary impacts; reduced water sales; and additional regulatory requirements.
In January 2024, the City retained Raftelis Consultants (RFC) to prepare a comprehensive water rate study for the upcoming five-year calendar period of 2025 through 2029. The comprehensive water rate study evaluates and analyzes the adequacy of potable (drinking) water rates for customers within the Torrance Municipal Water (TMW) service area (Attachment 5). Recycled water rates are not part of this study and the rate proposal only applies to customers served by TMW. The study utilizes an interactive financial model to assess, analyze, and estimate future costs, revenue requirements and water rates for calendar years 2025 through 2029. The water rate study establishes revenue requirements (revenue sufficiency) and rate adjustments needed over the next five years to meet all operating, capital, and financial obligations of the municipal water utility enterprise during this period.
TMW provides water service to approximately 78% of Torrance’s geographic area, with the remainder of the City being served by the California Water Service Company (CWSC). As a self- sustaining enterprise of the City, all operating, maintenance, capital costs, and other financial obligations of the water enterprise functions are derived from revenues generated by water rates and related service charges. Water sales revenues currently provide approximately 85% of TMW’s annual revenue. Over the past decade, there has been an overall decrease in potable water use statewide, as well as within the local South Bay area, due to concerted and sustained water conservation efforts and past drought impacts. This “new normal” in reduced potable water use is a major factor influencing the need for rate adjustments for almost all water utilities in California.
The proposed five-year 2025 through 2029 water rate plan provides adequate revenues to: meet all operating and maintenance (O&M) needs; fund a systematic capital improvement program to replace and maintain existing infrastructure; and develop new local resources that will reduce our reliance on increasingly expensive and vulnerable imported water supplies purchased from the Metropolitan Water District (MWD). These new water resources will not only enhance water reliability for the City but will also help stabilize long-term water rates by lowering water supply costs by substituting lower cost local supplies for purchases of expensive imported water. In addition, the five-year rate proposal will create an adequate reserve level for future emergencies and contingencies, while still maintaining our position as having rates that are the lowest or among the lowest in the area.
The vast majority of the TMW infrastructure is more than 50 years old, including over 300 miles of water pipelines. To maintain the integrity and reliability of the water system, it is necessary that the water system infrastructure be replaced or refurbished through implementation of an ongoing capital improvement program. Over the past 30 years, the implementation of a systematic replacement program has decreased the incidence of main breaks by over 70%, and substantially reduced corresponding water outages and damage to roadways and other private and public property. It is necessary to invest an average of approximately $5 million per year into City Council
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infrastructure replacement, rehabilitation and improvement projects to maintain the integrity of the municipal water system and increase water supply reliability and resilience.
The Rate Study confirmed that the current municipal water tiered rate structure conforms to recognized cost of service (COS) criteria and principles. Water rates and fees based on cost of service reflect charges that are recovered from classes of customers in proportion to the cost of providing that service to that class of customer. In developing the rate study, RFC used the COS methodology established by the American Water Works Association (AWWA), which sets standards and benchmarks for the water industry.
The Water Rate Study completed by RFC proposed that rates be adjusted annually over the five- year rate planning period. The proposed rate structure (Attachment 3) meets TMW’s five-year revenue requirements and are allocated proportionately based on recognized cost of service principles as required under Proposition 218. The proposed rate adjustments would become effective on January 1, 2025, and subsequently be adjusted each January 1 in 2026 through 2029. Based on the study’s findings (Attachment 6) and staff analysis presentation (Attachment 7), the principal recommendations are as follows:
▪Adjust rates over the five-year period of 2025 through 2029 to fully recover all costs, provide funding for the capital improvement program, and maintain the recommended level of financial reserves.
▪Retain the current 3-tier rate structure for the single family residential (SRF) and low- income seniors or disabled customers and retain the current two-tier structure for all other standard customers.
▪Gradual incremental annual increases in the fixed meter charge rate component (readiness-to-serve) beginning in 2026 to better align fixed costs to fixed revenues. ▪Retain the low-income discount for SFR seniors or disabled customers.
The Water Commission considered the water rate study/plan at their regular meeting held on August 28, 2024. The Commission provided conceptual concurrence to the recommended five- year rate plan principal as shown in Table 1.
Table 1: Overall Annual Average Percentage Adjustment
Calendar Year 2025 2026 2027 2028 2029
Proposed rate increase 6.5% 6.5% 6.0% 6.0% 6.0%
TMW rates are considerably lower than neighboring water utilities and will remain below these agencies even with the proposed rate adjustments in the future. Currently, the average monthly water bill for neighboring agencies ranges from about $69 to $103 for the typical single-family customer (Attachment 4). It is expected that these agencies will also be increasing their rates in the near future. The rate impact on the typical Single Family Residential Customer (SRF), typical Other Standard Customer (Other) and typical Low-Income Senior or Disabled Customer is shown in Tables 2, 3 and 4 on the following page.
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The respective cost of service for each customer classification was analyzed and adjusted to re- align to COS criteria for the first year of the proposed rate adjustments starting January 1, 2025.
This was necessary to re-align COS for individual customer classifications that have occurred since the implementation of the last rate adjustment in 2018. Therefore, an individual customer’s water bill may vary from the overall system rate adjustment of 6.5% in 2025. In the succeeding years of 2026 through 2029, all water rates will be adjusted by uniform percentage as shown in Table 1 above.
In addition to the adjustment to water rates, service fees for Pumping Charges and for Private Fire Protection will also increase over the five-year rate period to fully recover costs.
Table 2: Single Family Residential Customer
Table 3: All Other Standard Customers
Table 4: Low Income Senior or Disabled Customers
Under the proposed rate adjustment, Torrance Municipal Water rates will remain among the lowest for comparable agencies. All Proposition 218 requirements have been met. The public notification (Attachment 2) was mailed on October 2, 2024, in accordance with the minimum 45- day notice period, and three Notices regarding the Public Hearing were published in the Daily Breeze on October 31, 2024, November 9, 2024 and November 16, 2024 (Attachment 8).
It is therefore the recommendation of the Water Commission and the Public Works Director that City Council approve the five-year water rates to become effective on January 1, 2025 with
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subsequent adjustments on January 1 of each year from 2026 through 2029, in accordance with the recommended Resolution (Attachment 1).
ATTACHMENTS
1. Resolution Setting Water Rates and Service Charges
2. Proposition 218 Public Notice mailed to customers
3. Summary Schedule of Proposed Rates and Service Charges
4. Bill Comparison Single Family Residential Customer
5. TMW Service Area Map
6. Water Rate and Cost of Service Study Report
7. Comprehensive Water Cost of Service Study Staff Presentation
8. Notice of Public Hearing published in Daily Breeze on October 31, 2024, November 9, 2024 and November 16, 2024 (Material Available)